Amazon advertising business continues to grow at a rapid pace offering many opportunities for businesses to put their products in front of interested leads. When you invest in running sponsored ads to reach leads, you must monitor your Advertising Cost of Sales (ACoS).
When you advertise a product on Amazon, you are charged on CPC (cost per click) basis. If 10 people clicked on your ad and only one of them bought your product, then the total CPC you pay to Amazon for these 10 clicks is your cost of advertising to earn a sale. Amazon reports this cost as a percentage of the total sale value and terms it as Advertising Cost of Sale which is ACoS.
- The lower your ACoS, the better your Ad is performing: a theoretical ACoS of zero would mean you spend nothing, yet make a sale.
- A high ACoS signifies an underperforming Ad. You are spending more to reach your target audience and are in danger of losing money on your Ad.
How to calculate ACoS
ACoS, or Average Cost of Sales, is probably the most important metric Amazon uses in Amazon Advertising (formerly AMS). ACoS is measured as a percentage showing you how much a sale costs you in advertising money:
ACoS = $ Spent on Advertising / $ made in Sales
Important as it is, however, ACoS on its own is just a number. In order to optimize your Ads and increase your profits, you need to understand how it works and what it means in practice.
What is meant by high and low ACoS?
It is generally believed that having a low ACoS is what one should aim for. However, it is dependent mainly on your strategy for selling a product.
A 15-20% ACoS could be considered as a low ACoS and a decent milestone to start with. Strategizing for your ad Spending could be tricky, but it is majorly driven by what your needs are.
For instance, setting a low ACoS could be a great strategy for:
1. Selling a product that you feel does not need high visibility.
2. Selling a low converting product
Setting your bids low does not always guarantee profits, it might end up being a loss. This is because having a low budget for ads is compromising your product’s visibility. For example, spending low on a competitive keyword runs the risk of losing the auction for it. While having a low ACoS is great for profitability, a high ACoS can give you:
1. Dominance in a niche.
2. Increase your product’s visibility
3. Help you get rid of low selling products
4. Increase brand awareness
How to determine the right ACoS for your ad campaign?
Break-even and Target ACoS are the parameters that drive you towards the right ACoS for your ad campaign.
- If your ACoS is higher than Target ACoS, it tends to increase your profit margins.
- Any ACoS higher than your Target ACoS but lower than your Break-Even ACoS is profitable but it takes a part of your profits.
- And any ACoS higher than your Break-Even ACoS is making a loss.
If you haven’t checked it out, here’s our guide to Amazon Sponsored Products which will give you details on the impact of ACoS on your ad campaigns.
Top 4 Use Cases To lower your ACoS using DataHawk Keyword Rank Tracker and Keyword Analysis:
1. Keyword Analysis
If you are looking to find leads that will convert, choosing the right keywords is the first thing that you wanna do. When you choose the right keywords, you attract more leads that are interested in your products without spending more money on advertising. Review your keyword selection, make sure you include the most relevant keywords in every ad group that matches the intent of your target customers for the given products.
With the most relevant keywords, your ads may attract the most relevant traffic and therefore higher conversion rate and as a result lower ACoS.
You can do it very easily by conducting Keyword analysis using DataHawk’s Keyword Tracking Tool & DataHawk’s Product Research Tool. Selecting the “product” from the “products list” will take you to the product page. Select the Keyword Rank Tracker to have a view on how the product has been ranking for the keywords that are being tracked within the project for the selected period of time.
We analyzed the “10 Inch Gel-Infused Green Tea Memory Foam Mattress” by Zinus.
It gives you the list of Keywords for which this product is organically ranking. The tool allows you to analyze the product rankings across the first 10 pages.
With DataHawk’s Keyword Tracker, we could also monitor the overall position of the product with the page on which it is appearing.
For instance, it can be seen that on 12 March 2020, for the keyword “memory foam mattress”, the product(a variation of the searched product which is represented by the green diagonal lines) is ranking organically with an overall position of 9 and is present on page1.
This gives you a clear view across the first 10 search page results and also the monthly search volumes of the keywords for which the products are ranking. This allows you to select which keywords to bid and prioritize your ad spendings.
This is how you can roll with the organic search by DataHawk Keyword Rank Tracker:
- Reduce bids on keywords that you are already ranking well on
- Stop bidding altogether on them
- Redirect your ad spend on other relevant search queries for which you are not ranking well organically.
2. Estimate the competition
Click on the keyword of your choice either from the list under the Keyword Rank Tracker tab as before or click on Keyword from the left navigation bar to access the list of keywords tracked under the chosen Project.
For instance, we monitored the keyword, “memory foam mattress”, from the list under the Keyword Tracker tab.
We found that this keyword has a monthly search volume of 110,000 and a Keyword Competition Score of 45%, which is a very strong competition.
This type of approach allows you to know and decide which keywords you can bid considering the competition and the price to bid on them.
3. Monitor CPC Data
DataHawk’s Keyword Lookup gives you access to a list of keyword suggestions for which the product has ranked organically at some point. It gives you the ranking, search volume and most importantly the CPC data.
We monitored the product “10 Inch Gel-Infused Green Tea Memory Foam Mattress” for this and we had the suggestions for relevant keywords that we can bid on.
For instance, for the “memory foam mattress queen” keyword the CPC is $2.97 and the competition score is super high.
You can also track the keywords that you find relevant and you are already not tracking which will allow you to monitor which products are ranking for this keyword. This will let you monitor where your competitors are ranking and if you have a chance to rank higher.
4. Bid on competitors’ products that are relevant
Amazon allows you to bid on your competitors’ products also. This means that you can target your competitor’s products on Amazon to appear on their product pages.
As you can see here, the brand Vibe has its ads running on the product page of Zinus Mattress. It is also a great idea to bid for your own products on your own product pages so as to increase the visibility of your products.
DataHawk Keyword Tracker allows you to do it in a very simple way.
From the list of tracked keywords, you can select the relevant keywords and see which products are ranking on it. Simply, go on the Tracked Keywords page and click on the relevant keyword.
For example, we monitored the keyword “spring mattresses”, this will give you a list of all the products ranking for this keyword.
Bidding on competitor trademarks and brand names are powerful tools. Appearing alongside a competitor’s product provides another option for the shopper and an opportunity to win over an otherwise loyal customer from the competition.
For instance, Bosch Tools could bid on terms related to Dewalt (“dewalt drill,” “dewalt circular saw”) to show its product alongside Dewalt products when consumers are making a purchase decision.
You can now also use product targeting in the manual campaign to pick and choose what products you want to be shown alongside.
We can take the example of Beats, they may want to position its Studio3 wireless headphones alongside Bose’s noise-canceling 700 headphones. Beats can monitor these ASINs and select them when setting the targeting in its ad campaigns.
You can use similar methods to protect your brand from competitors who are playing offense on Amazon. Target your own products and categories to ensure that more and more products of your brand appear on the product page under “Sponsored Products related to this item.” This allows you to box out the competition on your product pages and prevent shoppers from second-guessing prior to adding to cart. Even if your other products appear and appeal to them, you will still keep the customer.
Here is an example of how NYX has done it.
And with these optimization tips, you will surely be running successful marketing campaigns on Amazon.
By setting from the start your Target ACoS when designing an Ad campaign on Amazon Advertising, you can practically ensure your campaign’s success. However, hitting your Target ACoS is a time-consuming effort that requires constant tweaking and testing.
By monitoring your sponsored products, you'll increase sales and control ACoS without spending precious time with manual management.
You can get access to an intuitive dashboard that will report your main Amazon advertising KPIs on a child ASIN level, such as, Impressions and clicks, CTR, CPC, Ad Spend and Ad Sales, ACoS, TACoS, Conversion Rate, and Total Sales, Blended CPS and Ad Sales Weight, Organic Sales, Organic Sales Weight, and Post-Ads Margin.
Connect your Amazon Ads Manager credentials to DataHawk now!